CR,
I am surprised that you didn't include the delinquency numbers in your post on Berkshire's Clayton unit. This is amazing and clearly shows that if the incentives are right, there are ways to dramatically enhance the occupant's ability to pay the mortgage, stay in the home etc, even in these economic times, single digit delinquencies with many of these borrowers have FICO below 620.
Clayton’s 198,888 borrowers, however, have continued to pay normally throughout the housing crash,
handing us no unexpected losses. This is not because these borrowers are unusually creditworthy, a point proved
by FICO scores (a standard measure of credit risk). Their median FICO score is 644, compared to a national
median of 723, and about 35% are below 620, the segment usually designated “sub-prime.” Many disastrous
pools of mortgages on conventional homes are populated by borrowers with far better credit, as measured by
FICO scores.
Yet at yearend, our delinquency rate on loans we have originated was 3.6%, up only modestly from
2.9% in 2006 and 2.9% in 2004. (In addition to our originated loans, we’ve also bought bulk portfolios of various
types from other financial institutions.) Clayton’s foreclosures during 2008 were 3.0% of originated loans
compared to 3.8% in 2006 and 5.3% in 2004.
So I think this closes the debate regarding boom-busts: they are all about psychology and incentives within a system, and very little to do with nonhuman factors.
I featured the Clayton section and I agree it is important. I feel I have to limit the amount I excerpt, but I did include this:
Clayton’s 198,888 borrowers, however, have continued to pay normally throughout the housing crash ... This is not because these borrowers are unusually creditworthy ... Why are our borrowers – characteristically people with modest incomes and far-from-great credit scores – performing so well? The answer is elementary, going right back to Lending 101. Our borrowers simply looked at how full-bore mortgage payments would compare with their actual – not hoped-for – income and then decided whether they could live with that commitment. Simply put, they took out a mortgage with the intention of paying it off, whatever the course of home prices.
We're in the era of relative investing. It's hoot too. You get to repeatedly here wall street dingbats cheer on stocks that are only DOWN 40% vs. the 60% their competitors are down.
On a compounded basis, you'll be broke a full two or three months after the others. Woohoo!
Heh, it's good to see the transatlantic relationship working as it should, isn't it? We may be falling off a cliff, but at least we're falling hand in hand.
Makes you wonder if one of us will volunteer to land first and cushion the blow...
you think we want it in money? Wasn't the original plan either, just what wanted everyone to think (then again, pulled the same on most of the Am public)
I spoke with some friends last night about the way things are going. Basically, they've decided not to look at their portfolio statements for 4 years or so...
I remember three years ago CR said it would be 19 months between crash in residential and crash in commercial based on historic data. Looks like it was actually about 30 months this time. Right call, wrong timing - but I'll still judge it a win.
You're gonna want some QID, SSG and REW in the mix . . . these UltraShort ETFs focus on the NASDAQ, which has only seen about half the contraction of the DOW so far this year . . . SSG, based on the DJ semiconductor index, is weighted about 40% INTC, which is going to fall at next earnings call (get in no later than the first week of April). . . I won't be getting back into GLD and GDX until after the end of this quarter (I just got out on the highs), as I expect the big boys to sell off some of their positions to make their balance sheets this quarter look less ugly . . .
Eric,
I don't like how USO behaves. I am looking at royalty trusts instead. I find it pays to do stock selection versus using ETFs. For example, if SPY went to 65, there are companies you could probably short to zero and make 100%.
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I want a "Dow 7000" cap.
Dow at 68 handle.
CR,
I am surprised that you didn't include the delinquency numbers in your post on Berkshire's Clayton unit. This is amazing and clearly shows that if the incentives are right, there are ways to dramatically enhance the occupant's ability to pay the mortgage, stay in the home etc, even in these economic times, single digit delinquencies with many of these borrowers have FICO below 620.
Here is the full passage:
Clayton’s 198,888 borrowers, however, have continued to pay normally throughout the housing crash,
handing us no unexpected losses. This is not because these borrowers are unusually creditworthy, a point proved
by FICO scores (a standard measure of credit risk). Their median FICO score is 644, compared to a national
median of 723, and about 35% are below 620, the segment usually designated “sub-prime.” Many disastrous
pools of mortgages on conventional homes are populated by borrowers with far better credit, as measured by
FICO scores.
Yet at yearend, our delinquency rate on loans we have originated was 3.6%, up only modestly from
2.9% in 2006 and 2.9% in 2004. (In addition to our originated loans, we’ve also bought bulk portfolios of various
types from other financial institutions.) Clayton’s foreclosures during 2008 were 3.0% of originated loans
compared to 3.8% in 2006 and 5.3% in 2004.
So I think this closes the debate regarding boom-busts: they are all about psychology and incentives within a system, and very little to do with nonhuman factors.
continued to pay normally...no unexpected losses...delinquency rate up to 3.6% from 2.9%
Sounds like a bit fat spin of a lie.
When your foreclosed relatives come to live with you, more people to pay the mortgage!
I featured the Clayton section and I agree it is important. I feel I have to limit the amount I excerpt, but I did include this:
Clayton’s 198,888 borrowers, however, have continued to pay normally throughout the housing crash ... This is not because these borrowers are unusually creditworthy ... Why are our borrowers – characteristically people with modest incomes and far-from-great credit scores – performing so well? The answer is elementary, going right back to Lending 101. Our borrowers simply looked at how full-bore mortgage payments would compare with their actual – not hoped-for – income and then decided whether they could live with that commitment. Simply put, they took out a mortgage with the intention of paying it off, whatever the course of home prices.
best wishes.
Their actual current income. Once their actual current income hits zero, the numbers won't look so good. But then again, maybe all lending is local...
That additional $30 billion for AIG will surely feed directly into construction spending and employment.
By the way, did anybody vote on that? Somebody must have; I guess I missed it.
We're in the era of relative investing. It's hoot too. You get to repeatedly here wall street dingbats cheer on stocks that are only DOWN 40% vs. the 60% their competitors are down.
On a compounded basis, you'll be broke a full two or three months after the others. Woohoo!
Major alfa!
I want charts with sound effects.
I think the new comment system has sent the market into a panic.
The Latest from Denninger:
Told You So: Pensions
As a European, I would like to thank you, the American taxpayer, for bailing out our banks via AIG. It is appreciated (by us, if not by yourself)
No problem. You just keep buying U.S. Treasuries. Remember: In these uncertain times, they are the only safe bet.
Heh, it's good to see the transatlantic relationship working as it should, isn't it? We may be falling off a cliff, but at least we're falling hand in hand.
Makes you wonder if one of us will volunteer to land first and cushion the blow...
You're welcome Virgil. And don't worry, we'll figure out some way for you to repay us (or at least the govnmt will)
Hey, that's ok, just add it to the bill! (should fit somewhere after WW1, WW2 and the Marshall plan)
you think we want it in money? Wasn't the original plan either, just what wanted everyone to think (then again, pulled the same on most of the Am public)
This is the start of round 2... the one that puts as back on the 1930s trajectory on that 'four bad bears' chart.
Shambles!
AIG holds the note one our investment
properties. Does this mean I already paid
the note off and they owe me money?
I spoke with some friends last night about the way things are going. Basically, they've decided not to look at their portfolio statements for 4 years or so...
They're really going to regret that
I remember three years ago CR said it would be 19 months between crash in residential and crash in commercial based on historic data. Looks like it was actually about 30 months this time. Right call, wrong timing - but I'll still judge it a win.
That's what happens when you don't follow Gordon Brown's exemple, like 'Nobel' Krugman would say.
OK, time to start thinking about putting some more money to work here.
Here's my current thinking:
50% cash
10% XLE
10% USO
10% GLD
10% GDX
10% Sep SPY 65 puts.
any yays or nays on this portfolio?
You're gonna want some QID, SSG and REW in the mix . . . these UltraShort ETFs focus on the NASDAQ, which has only seen about half the contraction of the DOW so far this year . . . SSG, based on the DJ semiconductor index, is weighted about 40% INTC, which is going to fall at next earnings call (get in no later than the first week of April). . . I won't be getting back into GLD and GDX until after the end of this quarter (I just got out on the highs), as I expect the big boys to sell off some of their positions to make their balance sheets this quarter look less ugly . . .
Eric,
I don't like how USO behaves. I am looking at royalty trusts instead. I find it pays to do stock selection versus using ETFs. For example, if SPY went to 65, there are companies you could probably short to zero and make 100%.
Should I be registered to follow the cervix fear indicator a.k.a. CRVIX?
curious, anyone got a guess on where the dow will end today?
@1134:
Sadly, there isn't a CRVIX at this time. JS-Kit never thought about the important things it seems.
Google Reader shows charts of the comment posting frequency by day, time-of-day, and date. Go to this link and click on "details". Requires a free Google account. (Sorry to keep repeating the RSS/Google Reader evangelism, but over half the complaints about the new comment system would be addressed by using this.)
New post. Max says: "CRBot, time to update your code yet again. Are you sick of this yet?"
"AIG holds the note one our investment
properties. Does this mean I already paid
the note off and they owe me money?"
No. You will be paying AIG twice. Once for your loan and once for somebody else's.
Eric sed: OK, time to start thinking about putting some more money to work here.
Money doesn't do work. That's why banksters/"investors" are the ticks on any economic system.
The article was very informative and I hope that I will get such good article in future also. I often read your articles and will also read in future.